Cut the Red Tape To Get More Affordable Housing

Art Carden
, ContributorUsing economics to understand the world.Opinions expressed by Forbes Contributors are their own.

“I’d love to live in San Francisco, but I don’t want to pay $750,000 to live in a closet.” That’s what I tell my introductory economics students when I discuss housing prices. I probably need to update it to $2 million or something like that.

Why? Why is housing so expensive in cities like San Francisco, Boston, New York? It’s expensive because demand is high and rising. It’s insanely expensive to live in San Francisco because practically everyone wants to live in San Francisco.

But that’s only half the story. Housing is also insanely expensive because supply isn’t rising very quickly.

When you have demand rising quickly and supply changing slowly, you get rising prices. So how do we fix it?

First, we need to take a very hard look at the rules making it very hard to supply new housing. As Thomas Sowell points out in a Hoover Institution interview, land-use restrictions make it “prohibitively expensive” to build new housing in a lot of places.

In a 2008 paper in the Southern Economic Journal, the economists Edward Glaeser and Kristina Tobio argue that since 1970, the ease of increasing the housing supply explains the explosive growth of “Sunbelt” cities like Houston, Atlanta, and Dallas (their published paper is here, an ungated policy brief explaining their finding is here).

Second, we need to take a very hard look at how our moral intuitions might cloud our judgment. Trade-offs are everywhere, and by forcing housing to be safer and more comfortable we necessarily make it more expensive. Just as people are willing to live in a mediocre school district or high-crime area to get cheaper housing, they might be willing to accept the risks associated with less-safe housing if it means cheaper housing. This is a hard pill to swallow, but it’s important to respect that choice.